If you don't already know how important it is to find the best mortgage rates, you're reading the wrong article. You need to see How Much Shopping Around for a Mortgage Can Save You. Then come back to this article to discover some of the other things you should look out for when you're buying a home. They vary from the obvious to the obscure:
1. The Right Home – for Decades ...
Buying and selling a home and moving can be horribly stressful and expensive. So you don't want to do it any more often than you absolutely have to. That means you probably shouldn't buy a place that suits your lifestyle just this year and next. Try to plan ahead, and take into account the next stage of your life as well as your current one. For example:
- If you're newly wed, will there be enough bedrooms for all the kids you plan to have? And are you moving to child-friendly neighborhood in a good school district?
- If you're a little older, might your parents or in-laws eventually need to move in with you? If so, is there space to add the necessary accommodation, and are good medical facilities close at hand?
- Are there plenty of jobs within an easy commute should you become unhappy where you're working now?
- If you're preparing to retire, are there steep slopes or steps in the yard you might later come to hate? Will that yard become too big to manage? And could the interior easily be made navigable in a wheelchair?
2. ... Or the Right Mortgage – for Years
Of course, sometimes you know you're definitely going to be moving again in a few years or maybe a decade. If so, consider whether an adjustable-rate mortgage (ARM) might suit you.
So-called hybrid ARMs allow you to fix your rate for a pre-agreed period, often three, five, seven or ten years, and it only floats when that time's elapsed. Best of all, ARMs come with notably lower mortgage rates than fixed-rate loans, so there's the potential to make big savings.
Of course, if you're likely to stay put only a short time, you may be better off postponing buying a home and sticking with renting. Take a look at the rental and purchase sectors of your local housing market before you decide.
3. Is Your Credit Straight?
You could add $66,000+ to the payments on a $200,000, 30-year fixed rate mortgage, if you make your loan application when your credit's poor rather than great, according to FICO, the credit scoring company. So it's well worth paying attention to your score and working hard to improve it. Often, just a small increase in your score can shave a worthwhile amount off your monthly payments.
4. Have You Saved Enough?
Generally speaking, the higher your down payment, the lower the mortgage rate you're likely to be offered. So it's good to save as much as you can before making a loan application.
If you don't have enough savings to get a mortgage at all, you might be able to borrow to make up the shortfall. But you need to be really careful you'll be able to afford the payments on both that loan and your mortgage. Ask yourself: If you're that good with money, how come you haven't saved more?
5. Check Your Loan Estimate(s)
This is a simple, three-page document that sets out the most important details of the mortgage for which you've applied. It provides key information in a very accessible, standardized format. You should receive it before the lender approves or denies your loan, and the only cost you may have to pay before you receive it is one for a credit check.
That means, you can get multiple ones of these when you're shopping around for the best mortgage. And that's when loan estimates can be most valuable: That standardized format lets you easily compare the deals or offers.
6. Have You Read Your Loan Agreement?
Mortgage loan agreements are so long and boring you may find yourself wondering if the lender would prefer you not to read it. With some unscrupulous ones, you might be right. That, of course, means you really ought to disappoint them.
Here are some clauses to look out for:
- How much will you be charged if you make late payments or skip one altogether?
- What does it take to trigger a foreclosure? Do you have a grace period before the process starts?
- Does the contract build in mortgage protection insurance? You may or may not want to get it through your lender – or, indeed, want it at all. Learn more at Will Mortgage Protection Insurance Benefit You?
- Are there any hidden fees? Some lenders try to sneak these in, claiming they cover admin costs or something equally unconvincing.
- Are there any early repayment (or prepayment) fees? Particularly if you've been offered an especially good deal, a lender might penalize you if you want to sell or refinance within a set period. This can be fair, but you need to know for how long such a penalty applies, and how much it will cost you.
7. Don't Forget to Check Your Title Commitment
Don't make the mistake of thinking you can skip this bit just because you have title insurance. That will cover only those risks to your title that were unknown when you closed, and any ones known at that time will be excluded from your insurance. Your title commitment (a.k.a. "title binder" or "preliminary title report" or some other document with "title" in its ... er, title) should list any existing, known threats to your free use of your property, and you need to know about those, if any.
Often they're innocuous, such as a utility company having a right to run cables over your land, but legal website NOLO gives an example of when a failure to read a title commitment goes wrong. There's a knock at your door soon after you move in, and a stranger says he's come to deliver a few truck loads of gravel that he plans to store in your backyard. You say he can't, but he says he has the right to do so because he has an easement. You call your title insurer to ask for its help, and its agent tells you that you're on your own, because the easement was listed on your title commitment. You wish you'd known you were supposed to read that.